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Unformatted text preview: Introduction to Business SENIOR CONTRIBUTING AUTHORS LAWRENCE J. GITMAN, SAN DIEGO STATE UNIVERSITY - EMERITUS CARL MCDANIEL, UNIVERSITY OF TEXAS, ARLINGTON AMIT SHAH, FROSTBURG STATE UNIVERSITY MONIQUE REECE LINDA KOFFEL, HOUSTON COMMUNITY COLLEGE BETHANN TALSMA, DAVENPORT UNIVERSITY AND GRAND RAPIDS COMMUNITY COLLEGE JAMES C. HYATT, UNIVERSITY OF THE CUMBERLANDS OpenStax Rice University 6100 Main Street MS-375 Houston, Texas 77005 To learn more about OpenStax, visit . Individual print copies and bulk orders can be purchased through our website. ©2018 Rice University. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0). 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For questions regarding this licensing, please contact [email protected] Trademarks The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, OpenStax CNX logo, OpenStax Tutor name, Openstax Tutor logo, Connexions name, Connexions logo, Rice University name, and Rice University logo are not subject to the license and may not be reproduced without the prior and express written consent of Rice University. PRINT BOOK ISBN-10 PRINT BOOK ISBN-13 PDF VERSION ISBN-10 PDF VERSION ISBN-13 10 9 8 7 6 5 4 3 2 1 1-947172-54-9 978-1-947172-54-8 1-947172-55-7 978-1-947172-55-5 OPENSTAX OpenStax provides free, peer-reviewed, openly licensed textbooks for introductory college and Advanced Placement® courses and low-cost, personalized courseware that helps students learn. A nonprofit ed tech initiative based at Rice University, we’re committed to helping students access the tools they need to complete their courses and meet their educational goals. 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TABLE OF CONTENTS Preface 1 Understanding Economic Systems and Business 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 2 Understanding Business Ethics 61 How Organizations Influence Ethical Conduct 64 Managing a Socially Responsible Business 69 Responsibilities to Stakeholders 73 Trends in Ethics and Corporate Social Responsibility Competing in the Global Marketplace 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4 The Nature of Business 12 Understanding the Business Environment 17 How Business and Economics Work 21 Macroeconomics: The Big Picture 28 Achieving Macroeconomic Goals 33 Microeconomics: Zeroing in on Businesses and Consumers Competing in a Free Market 43 Trends in the Business Environment and Competition 46 9 37 Making Ethical Decisions and Managing a Socially Responsible Business 2.1 2.2 2.3 2.4 2.5 3 1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 87 Global Trade in the United States 89 Why Nations Trade 93 Barriers to Trade 95 Fostering Global Trade 97 International Economic Communities 100 Participating in the Global Marketplace 105 Threats and Opportunities in the Global Marketplace The Impact of Multinational Corporations 114 Trends in Global Competition 118 Forms of Business Ownership 129 Going It Alone: Sole Proprietorships 131 Partnerships: Sharing the Load 134 Corporations: Limiting Your Liability 137 Specialized Forms of Business Organization Franchising: A Popular Trend 147 Mergers and Acquisitions 155 Trends in Business Ownership 158 78 145 110 59 5 Entrepreneurship: Starting and Managing Your Own Business 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 6 247 Building Organizational Structures 249 Contemporary Structures 255 Using Teams to Enhance Motivation and Performance 258 Authority—Establishing Organizational Relationships 262 Degree of Centralization 264 Organizational Design Considerations 265 The Informal Organization 270 Trends in Organizational Structure 272 Managing Human Resources and Labor Relations 285 8.1 Achieving High Performance through Human Resources Management 8.2 Employee Recruitment 292 8.3 Employee Selection 294 8.4 Employee Training and Development 298 8.5 Performance Planning and Evaluation 302 8.6 Employee Compensation and Benefits 304 8.7 The Labor Relations Process 308 8.8 Managing Grievances and Conflicts 314 8.9 Legal Environment of Human Resources and Labor Relations 317 8.10 Trends in Human Resource Management and Labor Relations 321 9 209 The Role of Management 211 Planning 213 Organizing 219 Leading, Guiding, and Motivating Others 220 Controlling 227 Managerial Roles 228 Managerial Skills 231 Trends in Management and Leadership 233 Designing Organizational Structures 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 8 199 Management and Leadership in Today's Organizations 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7 Entrepreneurship Today 171 Characteristics of Successful Entrepreneurs 177 Small Business: Driving America's Growth 181 Ready, Set, Start Your Own Business 184 Managing a Small Business 193 Small Business, Large Impact 196 The Small Business Administration 197 Trends in Entrepreneurship and Small-Business Ownership Motivating Employees 335 This OpenStax book is available for free at 287 169 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 10 Early Theories of Motivation 337 The Hawthorne Studies 339 Maslow's Hierarchy of Needs 340 McGregor's Theories X and Y 342 Herzberg's Motivator-Hygiene Theory 345 Contemporary Views on Motivation 347 From Motivation Theory to Application 351 Trends in Employee Motivation 355 Achieving World-Class Operations Management 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 11 Production and Operations Management—An Overview 371 The Production Process: How Do We Make It? 375 Location, Location, Location: Where Do We Make It? 378 Pulling It Together: Resource Planning 382 Production and Operations Control 389 Looking for a Better Way: Improving Production and Operations Transforming the Factory Floor with Technology 394 Trends in Production and Operations Management 398 392 Creating Products and Pricing Strategies to Meet Customers' Needs 11.1 The Marketing Concept 412 11.2 Creating a Marketing Strategy 415 11.3 Developing a Marketing Mix 419 11.4 Buyer Behavior 423 11.5 Market Segmentation 427 11.6 What Is a Product? 433 11.7 Creating Products That Deliver Value 437 11.8 The Product Life Cycle 441 11.9 Pricing Strategies and Future Trends 444 11.10 Trends in Developing Products and Pricing 12 369 411 448 Distributing and Promoting Products and Services 459 12.1 The Nature and Functions of Distribution (Place) 461 12.2 Wholesaling 466 12.3 The Competitive World of Retailing 468 12.4 Using Supply Chain Management to Increase Efficiency and Customer Satisfaction 12.5 Promotion Strategy 474 12.6 The Huge Impact of Advertising 478 12.7 The Importance of Personal Selling 480 12.8 Sales Promotion 483 12.9 Public Relations Helps Build Goodwill 488 12.10 Trends in Social Media 489 12.11 Trends in E-Commerce 491 473 13 Using Technology to Manage Information 13.1 13.2 13.3 13.4 13.5 13.6 14 Accounting: More than Numbers 541 The Accounting Profession 546 Basic Accounting Procedures 549 The Balance Sheet 554 The Income Statement 557 The Statement of Cash Flows 560 Analyzing Financial Statements 562 Trends in Accounting 567 581 Show Me the Money 583 The Federal Reserve System 587 U:S: Financial Institutions 592 Insuring Bank Deposits 601 International Banking 603 Trends in Financial Institutions 604 Understanding Financial Management and Securities Markets 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 17 539 Understanding Money and Financial Institutions 15.1 15.2 15.3 15.4 15.5 15.6 16 502 Using Financial Information and Accounting 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 15 Transforming Businesses through Information Linking Up: Computer Networks 507 Management Information Systems 514 Technology Management and Planning 519 Protecting Computers and Information 521 Trends in Information Technology 527 501 The Role of Finance and the Financial Manager 617 How Organizations Use Funds 619 Obtaining Short-Term Financing 622 Raising Long-Term Financing 624 Equity Financing 626 Securities Markets 630 Buying and Selling at Securities Exchanges 636 Trends in Financial Management and Securities Markets Your Career in Business 17.1 17.2 17.3 17.4 17.5 17.6 643 655 Learn the Basics of Business 656 Developing Interpersonal Skills Is Key to Your Success 657 Make Your Future Happen: Learn to Plan 661 Going to College Is an Opportunity of a Lifetime—Never Drop Out Get Your Career Off on the Right Track 671 Self-Test Scoring Guidelines 681 This OpenStax book is available for free at 664 615 A Understanding the Legal and Tax Environment Index 721 685 This OpenStax book is available for free at Preface 1 Preface Welcome to Introduction to Business, an OpenStax resource. This textbook was written to increase student access to high-quality learning materials, maintaining highest standards of academic rigor at little to no cost. About OpenStax OpenStax is a nonprofit based at Rice University, and it’s our mission to improve student access to education. Our first openly licensed college textbook was published in 2012, and our library has since scaled to over 25 books for college and AP® courses used by hundreds of thousands of students. OpenStax Tutor, our low-cost personalized learning tool, is being used in college courses throughout the country. Through our partnerships with philanthropic foundations and our alliance with other educational resource organizations, OpenStax is breaking down the most common barriers to learning and empowering students and instructors to succeed. About OpenStax resources Customization Introduction to Business is licensed under a Creative Commons Attribution 4.0 International (CC BY) license, which means that you can distribute, remix, and build upon the content, as long as you provide attribution to OpenStax and its content contributors. Because our books are openly licensed, you are free to use the entire book or pick and choose the sections that are most relevant to the needs of your course. Feel free to remix the content by assigning your students certain chapters and sections in your syllabus, in the order that you prefer. You can even provide a direct link in your syllabus to the sections in the web view of your book. Instructors also have the option of creating a customized version of their OpenStax book. The custom version can be made available to students in low-cost print or digital form through their campus bookstore. Visit the Instructor Resources section of your book page on OpenStax.org for more information. Art attribution in Introduction to Business In Introduction to Business, art contains attribution to its title, creator or rights holder, host platform, and license within the caption. Because the art is openly licensed, anyone may reuse the art as long as they provide the same attribution to its original source. Errata All OpenStax textbooks undergo a rigorous review process. However, like any professional-grade textbook, errors sometimes occur. Since our books are web based, we can make updates periodically when deemed pedagogically necessary. If you have a correction to suggest, submit it through the link on your book page on OpenStax.org. Subject matter experts review all errata suggestions. OpenStax is committed to remaining transparent about all updates, so you will also find a list of past errata changes on your book page on OpenStax.org. Format You can access this textbook for free in web view or PDF through OpenStax.org, and for a low cost in print. 2 Preface About Introduction to Business Introduction to Business is designed to meet the scope and sequence requirements of foundational business courses. The textbook presents business principles and emerging trends in fields including management, leadership, production, marketing, and finance. Through this content, students will acquire the knowledge, skills, and competencies to prepare for the competitive workplace. Coverage and scope Introduction to Business covers the scope and sequence of most introductory business courses. The book provides detailed explanations in the context of core themes such as ethics, entrepreneurship, customer satisfaction, global business, and managing change. Introduction to Business includes hundreds of current business examples from a range of industries, geographic locations, and featuring a variety of individuals. The outcome is a balanced approach to the theory and application of business concepts, with attention to the knowledge and skills necessary for student success in this course and beyond. Pedagogical foundation Consistent, integrated learning. Targeted learning outcomes are listed at the beginning of each chapter and then repeated throughout the chapter. The learning outcomes connect to the text and the additional resources that accompany Introduction to Business. After reading each section, students can test their retention by answering the questions in the Concept Checks. Every learning goal is further reinforced by a summary. Hundreds of business examples to bring concepts to life. This book is designed to speak to the typical student. We have done a lot of research about student needs, abilities, experiences, and interests, and then we have shaped the text around them. We have used experiences both inside and outside the classroom to enrich a book that is both readable and enjoyable. We believe that the real business applications found throughout every chapter set the standard for readability and understanding of key concepts. Learning business terminology, made easy. As students begin to study business, they will explore new words and concepts. To help them learn this language of business, we define each new term in the chapter, display the terms in bold, and offer a complete glossary at the end of the book. Engaging business themes Ethics. Business presents outstanding opportunities to do good. Through responsible business practices and the development and distribution of helpful products and services, businesspeople can positively affect their community. A paramount theme of this text is that business must be conducted in an ethical and socially responsible manner. Chapter 2, Making Ethical Decisions and Managing a Socially Responsible Business, is completely devoted to business ethics and social responsibility. We discuss techniques for setting personal ethical standards, how managers influence organizational ethics, tools for creating employee ethical awareness, and the concept of individual and corporate responsibility. Introduction to Business also features ethics activities at the end of each chapter. All ethical dilemmas are taken right out of today’s business world. Customer satisfaction and quality. Because customer satisfaction and quality are the foundation of all business principles, these important topics are addressed in most chapters within Introduction to Business. Each chapter stresses that satisfied customers who experience high-quality products and services become loyal customers. A box in every chapter called “Customer Satisfaction and Quality” demonstrates how these concepts are applied in actual companies. Managing change. Change in the business or consumer environment can lead to failures like Kodak’s and This OpenStax book is available for free at Preface 3 successes like Apple’s. The Managing Change boxed feature describes how companies have recognized and responded to changes in technology, competition, economic forces, demographics, and culture. Entrepreneurship and small business management. Because many students will either open their own businesses or go to work for small organizations, entrepreneurship and small business principles are covered throughout the text. Chapter 5, Entrepreneurship: Starting and Managing Your Own Business, delivers interesting discussions on starting and managing a small business and the associated advantages and disadvantages. In addition, a feature called “Catching the Entrepreneurial Spirit” offers practical insights into the challenges and rewards of actually owning and managing a small business. Global business economy. In Chapter 3, Competing in the Global Marketplace, we discuss why global trade is important to the United States, why nations trade, barriers to international trade, how companies enter the global marketplace, and a host of other international concepts and topics. The Trends section of each chapter frequently includes a discussion of how globalization will affect specific business activities. In addition, our Global Business box demonstrates how businesses are expanding their workforce, products, and customer base throughout the world in order to grow. Features Rather than provide a dry recitation of facts, we illustrate concepts with contemporary examples. In addition to the in-text examples, we have several boxed features that provide more extensive examples in areas of importance in today’s business environment. Each of the boxed features described below includes a series of critical thinking questions to prompt the student to consider the implications of each business strategy. Ethics in Practice. Ethics in Practice features demonstrate how businesses are responsible not only to the bottom line, but to providing goods and services in a responsible manner. Customer Satisfaction and Quality. Because customer satisfaction and quality are essential to attracting and keeping customers, the Customer Satisfaction and Quality box addresses how these concepts are illustrated and applied in actual companies. Expanding Around the Globe. Upon entering today’s workplace, you are very likely to conduct business with colleagues, clients, and vendors from around the world. The Expanding Around the Globe feature offers insights into the global economy a...
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